Czech distillers expect lower sales due to changing lifestyle, weak economy and taxation
“We can confirm that the decline has been influenced by the economic
situation and the purchase power of consumers. We also believe that behind
the decline of the category of spirits is an increase in excise tax which
came into effect on January 1, 2010. Since the tax went up – by 7.5
percent – the category of spirits started to decline despite the fact in
the first wave of the recession, spirits sales were not affected by a
negative off-take by consumers. Over the first wave of the recession, the
category of spirits in fact grew but as of January 2010, it started to
decline.”
What’s the relation between dropping sales and the actual consumption?
You pointed out the role illegal trade with alcohol played in this so does
it mean that the consumption is decreasing too?
“That’s a question about the consumption of spirits as such. There are
two elements that are not included in the official consumption: the
so-called government-controlled private distillation which is subject to 50
percent of excise tax. The other thing is straight illegal distillation, or
moon-shining. When we look at this, it can represent an additional 20
percent of the total consumption of spirits.”
And is that decreasing simultaneously with the sales as well?
“We believe that the black market in which corporate bodies are involved
is under control, mainly thanks to the activities of the customs service.
But when we look at private distillation, we think it is on the rise
because as of January 1, 2011, it is no longer illegal to own distillation
equipment.”
So would you say that the consumption of commercially produced spirits is
down but it’s made up for by home distillation?
“I would say private distillation is rising but corporate crime of
avoiding excise tax is slightly reduced which can compensate the overall
spirit consumption. But consumers can easily switch to other categories
with lower excise tax rates in which a gram of alcohol, if you call it so,
is in fact cheaper. The main alternative here is of course beer but it’s
much cheaper to buy alcohol as the active ingredient in still wine where
there is zero excise tax.”
Do you see any changes to the lifestyle of the Czechs that might have
caused lower spirit sales?
“I do think there has been a change of the lifestyle, and we forecast
that such change will continue in the next five to ten years, and we expect
that the category of spirits will decline by one or two percent. That’s
clear. Besides, the social demographics is also changing including the
aging of the Czech population, and so on. But this will be of course always
accelerated by any economic changes – recession, changes to the excise
tax or overall taxation – which will lead to lower shopping powers of
consumers.”
Czech beer producers seem to be doing well with radler, a mix of beer and
lemonade, which has been a big success on the market. What is the spirits
producers’ strategy to counter the falling demand?
“We have several strategies and each producer in the country is looking
at different alternatives of growing the business. But generally speaking,
we have had higher sales of fruit liquors with lower alcohol content. That
appeals to mainly two groups: people over 40 who enjoy talking to their
friends over a couple of beers and then, as they were used to a few years
ago, calling a round of shots. Now, they are ready to order something with
less alcohol – vodka-based or fruit liquor products. Another group of
consumers are people of the young generation, over 25, who want to have fun
and enjoy the party but not to get completely drunk which we fully
support.”
How much of the sales account for pubs and bars, and how much for drinking
at home?
“On-trade, or pub consumption, is approximately one third of the market.
A few years ago, it was 50 percent so on-trade business is under pressure.
By the way, this is another reason why we think the government should
reconsider the taxation level of spirits because with an increase of excise
tax both on spirits and wine, consumers will be pushed out of restaurants
which will impact this segment of the industry.
“When it comes to off-trade, or retail, we see a general tendency to
exploration of mixed drinks. Consumers buy coke and other soft drinks,
juices and so on, and mix their drinks at home.”
How about imports of foreign spirits like whisky and other established
kinds of liquor? What’s the situation there?
“The situation there is stable. Consumers who have over the years found
quality in imported products stay with them and we can say the level of
imports is the same as it was years ago and has not been affected by the
recession. When we look at the position of the Czech Republic as an
exporter, we see the level of imports and experts are in fact the same.”
Exports are one of the things you mentioned that could help Czech
producers. Do you see any immediate opportunities on the world market?
“I have to be a bit sceptical here because we need to take into
consideration the fact that not many local spirits producers have strong
brands that can be easily exported. If there are opportunities, they are
already being exploited. All producers are also limited by distances and
transportation costs so majority of local producers can only focus on the
neighbouring markets where there is tough competition. Also, we can only
compete with products that are more or less commodities which means low
profit per volume.”
Your firm, Stock Božkov, has begun exporting one of your signature
drinks, the peppermint liquor known as zelená in Czech, to the US. Has
that been a success?
“It has and we have good sales there. That’s another example. But
talking about our company, I think the major success over the last two
years or so is taking over full production from our mother company in
Trieste, Italy which means we’ll be making spirits for markets in 55
countries.”
In many countries, mainly in Western Europe, you see a lot of local and
regional products, not necessarily produced by local firms. Is
regionalization and highlighting regional specialties a way to expend the
business?
“That’s I think an opportunity in bigger countries where any marketing
investment in that direction will easily pay off. We are a small market in
which we see different trends – loyalties to some brand in Moravia
compared to loyalty to another brand in Bohemia, or we can see higher
consumption of fruit distillates in Moravia, and so on. But such marketing
investment would be quite high compared to the pay-off.”
You firm has approached the European Commission about another of your
flagship products, tuzemák, which is the local rum. You complained about
an EU programme which supports rum producers in the Caribbean to help to
local industry. Instead, you said the EU should support producers in the
EU. Was it just a marketing stunt or have you actually heard back from the
European Commission?
“We did actually approach the commission. It’s an interesting thing
because it turned out that we came across a programme which will help us
export any of our brands outside the EU. But we do believe that the EU
should support local products rather than imports of Caribbean rum to the
union.”
